More and more schools falling into budget squeeze

(courtesy photo/used under Creative Commons license)

State Superintendent Mike Flanagan delivered troubling news to a legislative panel last week:

--One in 10 traditional K-12 school districts in Michigan (55 of 549) are operating in a budget deficit.

--The number of deficit districts has doubled since 2008, when only 27 were in the hole.

Two charts from different sources paint an interesting picture of the increasing fiscal stress for schools in recent years and suggest that districts and policy-makers must keep a close eye on districts’ financial health

Eric Lupher is director of local affairs for the Citizens Research Council of Michgan, a nonprofit, nonpartisan research group.

The first chart is from the recent Citizens Research Council of Michigan’s report: “Funding for Public Education: The Recent Impact of Increased MPSERS Contributions”. The chart displays total per-pupil funding provided to school districts since 2004 and separates funding into two categories: (a) the amount needed to meet obligations to the Michigan Public School Employee Retirement System (MPSERS); and (b) the “post-MPSERS” amount remaining to cover all other needs.

While overall funding to school districts has increased marginally since 2004, the amount needed to meet retirement costs has eaten up a greater portion of these revenues. MPSERS contributions equated to 8.7 percent of per-pupil revenues in 2004, but grew to 14.8 percent by 2012.

Focusing on the per-pupil revenue left over after meeting these increasing retirement obligations, the chart shows that, when adjusting for inflation, remaining revenue has declined by 8.8 percent for all public education entities (traditional and charter schools) since 2004. The CRC report looks at the same figures for only traditional K-12 school districts, and the situation is even worse with post-MPSERS revenue per pupil falling by 13.1 percent over this same time period after adjusting for inflation.

In short, the rapid growth in public school employer costs related to MPSERS has limited revenues available for other educational purposes.

The challenges presented by this crowding-out effect were then compounded by the significant per-pupil funding reductions implemented by the Legislature in 2012 to address structural deficits in the state budget and by declining enrollments, with the number of pupils in the public school system statewide declining from 1.71 million in 2004 to 1.55 million in 2012, a 10.5 percent drop.

Bob Schneider is director of state affairs for CRC. Prior to joining CRC, he was associate director for the nonpartisan Michigan House Fiscal Agency.

State School Aid Fund dollars are distributed on a per pupil basis, so some districts have faced the “double whammy” of fewer per pupil dollars available and fewer pupils drawing those funds. The combined impacts of all these factors have left public schools more financially constrained than they were a decade ago.

The second chart, Munetrix’s fiscal “Stress Meter,” gives an overview of fiscal indicator scores across the state and over time. Just as Munetrix has adapted and modified the state’s fiscal indicator scores for municipal governments (highlighted by Bridge Magazine a few weeks ago), Munetrix has worked with school officials to calculate fiscal indicator scores for school districts. (See Munetrix methodology here.)

Districts receive a “1” if calculated ratios exceed certain thresholds. The lower the number, the more fiscally sound a school district is determined to be. Munetrix has divided the school districts into three categories of scores grouped by color -- shades of green, blue and red.

It is clear on this chart that the number of school districts considered in fiscal distress (those in shades of red) and those with mild levels of fiscal stress (shades of blue) are increasing on a yearly basis, and that the number of school districts with minimal levels of fiscal stress (shades of green) are decreasing. This fiscal scoring system identifies 62 school districts (11 percent) that are in varying levels of fiscal distress and another 106 school districts (19 percent) that show signs of distress and should at least be on the radar of state officials because they could worsen without remedial actions at the local or state level.

CRC chart

Analysis of the data on the Munetrix website show that school districts in all regions of the state are suffering increased levels of fiscal stress. If your school district is not in the blue or red shade of Munetrix’s color coding scheme, chances are pretty good that a district close to you is. Clearly part of the problem lies in the changes in resources made available to school districts (as described above).

Munetrix chart. CLICK TO ENLARGE

More and more school districts are facing fiscal stress.  It is not a problem found in only urban or rural school districts. Nor is it unique to those districts for whom urban abandonment and mismanagement has led them down the path to deficits. The problem appears to cross all these boundaries.  Perhaps most alarming, the data suggests fiscal stress is spreading into new districts where it was not evident before. Of the 62 districts scored as having high fiscal stress (7 or higher) in 2012, 30 of those same districts scored as having minimal stress (3 or below) just four years prior.

Policy prescriptions for dealing with fiscally-stressed districts vary depending upon which prescriber you ask. Some point to the negative impact of recent funding reductions and the need for more state funding to prop up district resources.  Others ask why Michigan continues to have 549 locally-controlled traditional school districts in the wake of declines in enrollment. Regardless, however, of your prescription for the problem, there is one thing on which virtually everyone agree. In order to combat fiscal stress, you need to recognize that it’s arrived.

Searchable database of fiscal stress scores